A presentation I gave last Friday to the Arizona Corporation Commission.
Updated 8/26/11 and 9/1/11
Many renewable energy advocates argue that the market for solar renewable energy credits (SRECs) is a more cost-effective tool for incentivizing solar power than a feed-in tariff (or CLEAN contract) set in a regulatory proceeding.
This chart illustrates the installed cost of solar in New Jersey from 2006 to 2011 (as reported by the National Renewable Energy Laboratory in Tracking the Sun III and converted to levelized cost) in green, the New Jersey SREC spot market price in red, and the German feed-in tariff price (constant exchange rate, adjusted for NJ solar insolation) for rooftop solar projects 30 kilowatts and smaller in blue. (Update 9/1: the previous chart showing solar cost in $ per Watt is here).
Does a “market-based” policy do a better job of matching the actual cost of solar?
This comes to mind: “one of these things is not like the other…”
Update 8/26: I should add that the German feed-in tariff is the only source of revenue for solar projects, whereas the SREC in New Jersey comes in addition to the federal 30% tax credit and accelerated depreciation (and net metering). Since the two federal incentives (and net metering values) have not changed, the fact that the SREC value is rising against the tide of falling solar prices is even more absurd.
One of my colleagues informed me recently that my work on feed-in tariffs was cited in a recent report by the Intergovernmental Panel on Climate Change (IPCC): the Special Report on Renewable Energy Sources and Climate Change Mitigation. I can’t say I’ve read the IPCC report, but it’s an honor to have my work noticed by … Read More
Israel dealt with a similar debate, whether to adopt the Feed-in-Tariff method or the bidding method to promote the generation of renewable energy into the grid. While the electricity Authority (the equivalent body in Israel for NERSA) supported the REFIT process and the Ministry of National Infrastructures (the equivalent to the Department of Energy) and the Ministry of Finance preferred the Bidding process. Israel decided to publish REFIT in 2008, while issuing few tenders in the bidding process.
While the bidding based projects are not making big progress the REFIT based projects generate 100 MW of small systems today, an approved accumulated capacity of 150 MW that will be implemented soon. Quota of 300 MW for medium size plants was published, projects with the accumulated capacity of 200MW where given licenses and other are awaiting approval â out of 1.3 GW of proposals.
Tenders in the bidding process published in 2008 and no one was awarded the contract yet. There is only one participant in each one of in two tenders for CSP plants (100MW each). There is also a tender for a PV plant (30MW) but bidders didn’t submit their final proposals yet.
Advantages of the REFIT process over the bidding process:
1. Promotion of entrepreneurship and job creation: The Bidding process limits the game to few big players and excludes the small ones. The REFIT process allows to small and medium companies to participate. Israel developed an entire new renewable energy industry with close to a 100 active companies.
2. Efficiency: In bidding process the government becomes very involved and often intervenes in engineering and technological issues that is not capable to deal with. That creates delays and complications in the process.
3. Meeting the targets: Publishing tenders takes a lot of time, often much more than expected. That can result in not meeting the schedule targets. There is also a fear that companies that will lose the tenders will appeal to court and create more delays.
4. Simple rules of the game: the REFIT process puts together very simple rules that make it more transparent and easy to deal with.
5. The disadvantage of the REFIT process is that prices set at the beginning of the process do not reflect reduction in costs for the developers in the future. The solution is to publish quotas and a gradually decreasing REFIT.
All countries in Europe have decided to adopt the REFIT method. Israel found it as the most efficient way to promote renewable energy.
Dr. Ilan Suliman, former Vice chairman of the Israeli Electricity Authority has helped in putting these points together.
I received this information via email, but it’s also available here.
Thanks to innovative energy policy, residents of Ontario can invest in local solar power projects by buying SolarShare bonds. The $1,000 bond provides a 5% annual return over five years and the money is invested in solar power projects across the province (as the chart below shows, this beats a savings account with 0.8% interest or even a 5-year U.S. treasury, with 0.91% interest).… Read More
Distributed solar has an edge in the speed with which it will respond to financial incentives, he says. The private sector will begin to install solar panels in response to a feed-in tariff much more quickly than developers of large solar projects can negotiate power-purchase agreements with utilities and win regulatory approval from the government.
Energy policy matters, a lot. The Germans have a comprehensive feed-in tariff, providing CLEAN contracts to anyone who wants to go solar (or wind, or biogas, etc). The U.S. has a hodge-podge of utility, state and federal tax-based incentives. What does that mean?
Much cheaper German solar. In fact, it’s like having your favorite craft or microbrew beer at a price that beats Budweiser. From a study of U.S. solar prices reported in Renewables International:
Perhaps most surprisingly, the study found that the planned arrays larger than one megawatt have an average installed price of $4.50 per watt, with only a third of the systems in the pipeline coming in at prices below four dollars per watt. As Renewables International reported in January, the installed system price of photovoltaics in the US was easily 60 percent above the level in Germany in 2010 for equivalent system sizes (arrays smaller than 100 kilowatts).
Here’s a chart illustrating that cost differential, with the German prices updated for the 2nd quarter of 2011.
If the German solar prices are wunderbar, that makes the U.S. “furchtbar.”
If Germany’s 16 federal states had each enacted their own renewable energy legislation, we’d have far less solar energy usage. I often tell people that Germany has 400 types of beer and one renewables law, while the situation in the United States is the other way around.
The Golden State has covered over 50,000 roofs with solar PV in the past decade, but could it also save 30% or more on its current solar costs? Renewable energy guru Paul Gipe wrote up a study last week that found that Californians pay much more per kilowatt-hour of solar power than Germans do (accounting for the difference in the solar resource). The following chart outlines the various ways Californians pay for solar, compared to the Germans (averaged over 20 years, per kilowatt-hour produced).
While the study doesn’t explore the rationale, here are a few possibilities:
- The inefficiency of federal tax credits artificially inflates the cost of U.S. solar.
- Big banks that offer financing for residential solar leasing routinely overstate the value of the systems, increasing taxpayer costs on otherwise cost-effective systems.
- The complexity and intricacy of the state and federal incentives (4 separate pots of money!) and the lack of guaranteed interconnection means higher risk and higher cost for U.S. solar projects.
- The inconsistency in local permitting standards that increases project overhead costs.
Ultimately, the combination of these market-dampening problems in the California market has hindered the cost savings that have hit the German market. California solar installations of 25 kilowatts (kW) and 100 kW have a quoted price of $4.36 and $3.84 per Watt, respectively, according to the Clean Coalition. This compares to $3.40 per Watt on average for already installed projects of 10-100 kW in Germany.
Given a solar cost disadvantage that is present both in the value of incentives AND in the actual installed cost, renewable energy advocates in California should seriously question whether the current policy framework makes sense. The mish-mash of federal tax credits and state/utility rebates has not led to the same economies of scale and market maturity as Germany has accomplished with their CLEAN contract (a.k.a. feed-in tariff).
Switching energy policies could save ratepayers billions.
A 24-cent CLEAN contract price for California solar (to match the German contract) would replace the entire slate of existing solar incentives with an overall average cost 30% lower than the current combined incentives. If 2011 is a banner year and the state sees 1 gigawatt (GW) of installed capacity, the savings to ratepayers of a CLEAN program (over 20 years) would be nearly $3 billion.
If the CLEAN price were adjusted down to assume that projects could use the federal tax credit, then California could set the contract price as low as 18.5 cents per kWh, 5 cents less than is currently paid by California ratepayers (although requiring projects to use tax credits has significant liabilities).
Several states and municipal utilities (Vermont; Gainesville, FL; San Antonio, TX) have already shifted to this simple, comprehensive policy, with promising early results. Californians should consider whether holding to an outdated and complicated energy policy is worth paying billions of dollars extra for solar power.